INVESTMENT COMMUNITY PERSPECTIVE

Credibility and trust, the hallmarks of a good IRO, are stripes that are earned, but they are also stripes that can disappear quickly. There will be times when IROs are put to the test, but those moments can also be opportunities to deepen relationships with the Street. Admittedly, it is much easier to deal with most retail investors, as their demands are typically less complex and often they just want to hear a reassuring human voice. Research analysts and portfolio managers are another matter; they can be demanding, are knowledgeable, and are most likely to check facts and figures. They are also not afraid to speak their minds, as they, too, must answer to others for their work.

So how should you deal with the Street? The answer, quite simply, is fairly and honestly.

Fairly

There are clear regulations on disclosure, so be sure to always adhere to those regulations. If you are unsure, always err on the side of caution until you receive legal help; and get it as soon as possible. It is human nature to like some people more than others, but you cannot let this natural bias interfere with your work. To earn credibility with everyone, you must treat questioners in the same way, with courtesy and accuracy. Every once in a while someone may ask an extremely pertinent question, the answer to which may be material but not public. The wisest thing to do in this situation is to tell the person you will get back to him or her as soon as possible, and then consider whether a press release is required so that all investors and analysts get the answer at the same time. You can later explain (perhaps in a call immediately after the press release is public – your first call) to the person who asked the question that the answer warranted a press release for fair disclosure. The questioner wished to get the answer first but is likely to respect your handling of the situation.

Honesty

We all know there are things that an IRO can and cannot say, so being honest does not mean answering all questions, but it does mean any questions that can be answered must be answered honestly (and fairly). This is where trust and credibility start to shape relationships with the Street. If you are not sure of the answer, you are far better off saying so and then getting the answer, but this should be done quickly; do not let a question dangle. Also – and we all know this happens – if you provide a sincere response but later find out your answer was not accurate, you must provide a correction. Most people will understand and appreciate the effort to set the record straight.

Times of Crisis, Danger Wrapped with Opportunity?

Nobody wants to deal with a crisis but how the IRO responds in this circumstance will often leave an indelible mark on the Street. Here is when you can gain ground or lose credibility – sometimes completely. During times of crisis, the market is starving for information. Time is critical, but so is accuracy (and honesty). This is when key members of the company need to get together and strategize. Figure out the primary issues, how to address them, what to say to stakeholders (who may include employees, customers, competitors, investors and regulators) and how to handle delivery of the message. Remember, people will later have the benefit of hindsight and will judge accordingly.

During a crisis, the IRO should not be a lone wolf. Top executives should be working hand in hand with the IRO and everyone needs to deliver the same message. On some occasions, companies have used outside consultants and specialists to help craft responses and even provide an independent presentation. But responsibility for delivering the message to the Street will be very much the IRO’s job and you may work around the clock. Consider a conference call with top executives and perhaps independent specialists and be aware that many people will be listening. Often a press conference is held to answer questions. Also, be very sensitive to those who may be affected, directly or indirectly. After issuing a press release and holding a conference call, manage phone calls, emails and any other means that people use to communicate, including monitoring social media. Again, acting fairly and honestly will be critical. Do not overpromise and do not underdeliver. Keep it straight and simple.

In keeping fairness and honesty front of mind at all times when dealing with the Street, an IRO can build very strong relationships on the back of the credibility and trust earned the only way possible – the hard way.

Dirk Lever is Managing Director, Institutional Equity Research, AltaCorp Capital Inc.